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The Simple
Approach to
Pari-Mutuel Investing
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We Wager on Horses but Don’t Believe in Gambling.
The above statement seems like a paradox to most investment layman and/or
those who see stocks (or the like) as something different than horse racing. I
admit, there is a lot of ambiguity in that statement, and there is probably much
more gambling that goes on in horse racing than in the stocks. Nonetheless,
the view that all horse betting is gambling arises from a misconception of what
gambling and investing is.
Let me briefly explain our philosophy of investing and gambling. We are
opposed to gambling, not necessarily in an entertainment sense, but as being
lumped into what we do with horse wagering. Investment, however, is what we
strive to do with every wager. Both gambling and investing have similar
attributes which causes some confusion.
Investment: Risking money on a positive expectation.
Gambling: Risking money on a negative expectation.
Note, first of all, that both include the risk of money. Secondly, the difference
that separates that risking of money from gambling and investing is the
expectation. Where does a negative or positive expectation come from? It
comes from an extensive historical to present research and analysis of all
possible and meaningful data to form a rational deductive conclusion on the
probabilities of future outcomes in the area of your particular investment.
Blackjack (apart from any form of “cheating,” and card counting etc…) is
gambling and there is no way around it. Why? Because, every time you
place your bet you are “risking” money on a proven negative expectation.
Even though it is a slight percentage against you, over time, you will go broke.
I would assume, apart from the fanciful and ignorantly insane, that just about
everyone who plays in a casino knows that they are the underdog. Thus,
they understand it as gambling (even though they think and expect that they
should win).
Brokers, in stocks, do many similar things that we do with horse racing. They
research, accumulate data; arrive at the best possible scenario of what you
should do with your investment: (e.g. when to sell, buy, or hold). Are they
always right? No, but are they right enough to make up for when they are
wrong? Often, yes! Thus, the expectation of every dollar spent is a positive
expectation; no matter how long you invest you are mathematically making a
positive “bet.”
Can stock investors gamble? Yes. Can Horse investors gamble? Yes. But,
the moment they “gamble” they are no longer investors, thus the ultimate
answer is No. Can someone risk money in a stock or horses and gamble?
Yes, and the way in which they do it is by making ill informed decisions, often
based on a get rich quick scheme or just not caring about the negative
expectation in a consuming desire for action. We at HandicappingAnalysis.
com are about revealing the fallacies which cause people to gamble (often
unaware) and counsel them to the path of making long term investments.
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